Reverse Weighting The S&P 500 Begins to Show Relative Strength

2023 has been all about the “Magnificent 7”, the mega caps, the “elite 8”, the “A.I. tech” stocks, however you want to categorize them, leaving the rest of the market in the dust during the first half of the year.

Below is a relative performance ratio chart of the S&P 100 (the largest 100 stocks) vs. an ETF that reverse weighs the S&P 500, meaning it includes the same stocks as the cap-weighted S&P 500 but gives a higher weighting to the smaller companies.

We can see the strong performance of the mega caps as the line shot straight up in early 2023. But then it peaked at the end of May and has been losing to the reverse weighted fund over the last two months, despite the broad market continuing to climb higher.

I think there’s a few takeaways from this development… this speaks to the broadening out of breadth with more stocks improving in their up trends as the breadth data began improving in June. But I also think it tells the story of a possible sector rotation to under-performers. Now how the broad market handles that is still a question mark. If this rotation continues, does it come purely on a shift in relative performance or do the Mag 7 see changes in their absolute trends as well, which would be harder for the SPX to digest?

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